THE Reserve Bank has hinted at a possible interest rates pause in February, as minutes of its December meeting reveal that its latest decision to raise rates was touch-and-go.
The official records of the meeting show members - possibly including Treasury secretary Ken Henry - raised strong arguments against lifting rates for the third time in as many months, but were overruled.
The bank's board concluded that arguments for and against a rate rise were ''finely balanced'', but opted for an increase, in line with the views of the bank's governor, Glenn Stevens.
But the minutes concluded by declaring that the three rate rises since October have now ''materially shift[ed] the stance of policy to a less accommodative setting, and therefore … increasing the flexibility available to the board at future meetings''.
This clearly signals that a fourth rate increase in February is not a foregone conclusion. It implies that the first stage of the bank's interest rate hikes is over, with rates back within the normal range.
The official cash rate is still only 3.75 per cent, half a percentage point below any other low point for decades. But the growing interest margins charged by commercial banks mean nearly all borrowers are now paying more than they were at the end of 2001.
The minutes clearly indicate that further rate rises are likely, in order to keep ''the stance of policy appropriate to improving economic conditions''. But the punchline implies that they are no longer urgent.
The Reserve has been criticised for imposing three rises in three months for the first time, breaking Mr Stevens' pledge that any increases would be ''gradual''. Observers believe soaring house prices and a firming jobs market led it to accelerate its original timetable.
Markets still see a rate rise in February as likely, but on the ASX target rate tracker, the odds yesterday widened from 80 per cent to 67 per cent.
The minutes are optimistic about the economy. While acknowledging that bank finance remains difficult to obtain, especially for property developments, they find ''tentative signs'' that this is easing.
The Reserve's staff forecast that growth will be ''close to trend'' in 2010, implying that growth will accelerate to 3 per cent or more. Markets predict five more rate rises next year.
Dr Henry warned in October that signs of strength in the economy reflect the impact of the Government's stimulus, not a sustainable private sector recovery.
